9/22/2009

Trend spotting: Back-Office services

The year has seen recession-hit companies sell captive business
process units. Ostensibly to shore up the balance sheet & concentrate
on their core business. Citigroup, Aviva, AIG among others and more to
come.
BPO vendors lap up these captives for inorganic expansion of service
offering, geographies & domains served and client-baskets.
Here's a fundamental problem waiting to be solved. On the one hand
there is a huge appetite for back-office (BO) - the non-core
'plumbing' in every company. Never mind the sale of captive BO units.
That only highlights the other side of the coin. One can no more
accurately predict the cycles in business & economy. Demand for BO
services may spike in good times & will certainly be restrained in the
bad.

But while appetite for BO may grow & ebb in a firm, macro-economic
level demand should be near constant.

  1. Spurred by recession or the monotony of employment, many entrepreneurial ventures are constantly born.
  2. The entrepreneur - stretched taut by the need to stay competitive - is primed to be a BO-services consumer.
  3. Changes in the legislative environment, such as stricter reporting
requirements in the Companies Act, make the BO functions more intense,
although still non-core activities.
Couple these three factors and we have a large floating tribe of
consumers, in search of commoditized BO services. Commodities are
cheap, readily available and usually interchangeable (allow you to
switch vendors with ease).
It's surprising how many entrepreneurs feel the burden of juggling
these non-core activities. It's even more surprising how few
commoditized BO service offerings are there on the market.
As the BPO market sees consolidation, we need a change in paradigm
similar to the one that led entrenched software vendors to offer their
suites on a pay-per-use model over the web.

No comments:

Post a Comment